Jul 10, 2012|
Lessons from Philip Fisher IX - Employee relations
It is often said that a company's best asset are its employees. Other assets such as plants, buildings, and machinery are valuable, but they usually have a finite productivity and capacity. Motivated and dynamic employees on the other hand can be capable of extraordinary things. They can lift the productivity of existing resources with their creativity and skill. What employees say about the company, how they behave in the workplace, and how happy and motivated they are in their roles can all have significant impact on a business. This impact can be felt on the company's brand, its image, service levels, customers satisfaction and finally on investors.
Let's see what Philip Fisher has to say about employees in an organization and how a company should manage this important asset. The answers to the following questions can help evaluate your investment better on this important checklist.
Does the company have outstanding labour and personnel relations?
India is a country with a billion plus population. Thus a number of industries such as textile, IT off-shoring, banking, railways, automobiles etc are highly people intensive. Rather than using technology to automate processes, Indian companies prefer to employ cheap labour in order to get the task done. How a company manages this asset is important from a shareholder's point of view, but it is often ignored.
Just last year, auto major Maruti has had to deal with a huge production loss on account of labour strikes at its Manesar plant. The highly publicized month-long plant strike that began on August 29 2011 cost around US$ 135 m. The 13-day strike by 800 workers in June 2011 caused almost US$ 95 m in lost output. For 1HFY12, Maruti's total production loss was over 85,000 vehicles. For months there was uncertainty on how the management would deal with the crisis. There were many failed negotiations and unpopular measures implemented. Finally the crisis was resolved, however investors lost out badly as the stock price tanked in response to the crisis. Plus, the company also had to ramp up production to make up for the losses faced during the prolonged strike. Similarly a number of players in the textile industry including Raymond and Arvind Ltd continue to be plagued by labour issues .
The bottom line is that if workers feel that they are fairly treated by their employers they will be more productive. Plus there is always a cost of training each new worker. Companies with abnormal labour turnover therefore have unnecessary expenses that can be avoided by better managed companies. But, while a record of constant and prolonged strikes is a sure fire sign of bad labour relations, the complete absence of strikes is not necessarily a sign of good labour relations. Absence of conflict may in part hide an unhappy workforce scared of the consequence of conflict.
Companies that are willing to settle grievances quickly, and which do not let problems fester are usually good bets. A company that makes above average profits and also pays above average wages for the area it is located usually has good labour relations. An individual who buys into a stock, where a good portion of the earnings comes from the company paying below standard wages may lose out in the long run. Companies that take care of their employees, and don't indulge in mass hiring or sudden mass layoffs are usually good investment bets.
Does the company have outstanding executive relations?
If having good relations with people on the lower rung of the corporate ladder is important, creating the right atmosphere among people on higher ranks is even more important. These people lead teams, manage business units and handle marquee clients. Their judgment, creativity, resourcefulness and teamwork can either make or break a business venture. Because they play for high stakes, the tension on the job is high. Thus, there is a chance that friction at with the top management can lead to friction or resentment. Companies offering the greatest investment opportunities are the ones with a good executive climate. Not surprisingly, companies such as Apple, Google etc which top the lists of places where people want to work, have been great stock market bets as well. Promotions need to happen on an objective basis and salaries need to be reviewed on a regular basis to make executives feel at peace.
An organization where different ranks and files of employees all co-exist happily is usually a good investment. However, whenever human beings work together some degree of friction and factionalism has to exist. But, this should not worry an investor as long as it is kept to a minimum.
More Views on News
May 24, 2016
A highly probabilistic way of outperforming the markets during both - good and bad times...
May 24, 2016
The only rational response to manipulated markets...
May 24, 2016
Just how likely is a stock market crash?
May 24, 2016
How value stocks worldwide have fared by comparison with growth stocks since 1975...
May 23, 2016
Avoid investing in companies beyond your circle of competence, irrespective of how attractive the investment story sounds.
More Views on News
May 14, 2016
The secret of how the rich get richer regardless of spending.
May 19, 2016
The maverick MP has written to prime minster Narendra Modi to fire Raghuram Rajan.
May 20, 2016
Gold is currently in a bubble, as the market has become lopsided. Too many buyers mean that it is only a matter of time before gold crashes
May 13, 2016
How will economies in the Middle East cope in an era of low oil prices?
May 23, 2016
Although everyone wants to be rich and famous, few have the courage to work towards it. PersonalFN elucidates the lessons from some respected investment gurus.
© Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: 91-22-6143 4055. Fax: 91-22-2202 8550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407